XYZ, LP acquired a shopping center [in Boca, FL.) for $3,200,000 several years ago using...
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XYZ, LP acquired a shopping center [in Boca, FL.) for $3,200,000 several years ago using a CAP rate of 6%. The purchase price was allocated to land and building in the following amounts: $1,100,000 and $2,100,000, respectively. The terms of the original purchase were $700,000 in cash and the balance was to be financed by a local bank through a $2,500,000 recourse mortgage. The XYZ, LP shopping center developed substantial vacancies and was unfortunately unable to meet its debt service payments. At the time of the default, the outstanding recourse mortgage balance was $3,750,000 (due to a subsequent refinancing and accrued interest payable). The fair market value of the property was $2,750,000 and the adjusted tax basis of the property was $2,450,000. The amount and type of gain XYZ, LP would realize upon a bank foreclosure at the time of this default (bank foreclosure) would be:
a. $250,000 ordinary gain and $50,000 capital gain.
b. $1,000,000 ordinary gain, $0 capital gain and $300,000 depreciation recapture.
c. $300,000 ordinary gain, $800,000 capital gain $200,000 depreciation recapture.
d. $1,300,000 ordinary gain
e. $300,000 ordinary income and $300,000 capital gain and $750,000 depreciation recapture.
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